Jetrader - January/February 2013 - 19

appraisal

Boeing 777-200LR
Dr. Stuart Hatcher Head of Valuations & Risk IBA Group Ltd. +441372 224488 Stuart.Hatcher@ibagroup.com

Background
The Boeing 777-200LR is an ultra-longrange version of the popular 777-200ER and was designed to be the longest range commercial aircraft in the world. Originally dubbed the 777-200X, the program was launched in February 2000 at the same time as the 777-300ER. Despite a program halt in October 2001, development continued from March 2003 with first flight taking place in March 2005. With the added option of fitting three additional fuel tanks in the aft cargo (6 x LD3), the range can be extended up to 9,395 nautical miles with a full passenger payload of 301 passengers. Comparing directly against the extended range version, the 777-200LR also provides an additional 47 tons of revenue cargo capability. It is therefore no surprise that the 777-200LR also serves as the platform for the 777 freighter. Despite a very slow start, the first aircraft entered service in February 2006 with PIA and by the end of November 2012, Boeing had delivered a total of 54 aircraft to 11 operators. According to Boeing, there are only an additional four aircraft on backlog; Air Austral (1), Turkmenistan Airlines (2) and Ethiopian Airlines (1). Whilst the total sales figures for the 777-200LR may appear disappointing when compared to the dominance of the 777-300ER, 58 orders is indicative of the fact that ultra-long-range aircraft remain niche players. Coupled with the current trend towards upsizing in an attempt to improve seat mile costs, the 777-200LR offers operators with the opportunity to serve premium city pairings at a time whilst fuel prices remain difficult to predict. The only competition for the 777-200LR comes in the form of the Airbus A340-500 which entered into service ahead of the LR in September 2003 with Qatar Amiri Flight. With only 34 in service before production ended last year, the market has not responded well to Airbus’ A340 ultralong-range offering. A combination of high fuel cost and a niche market position have conspired against this A340 which remains a continual remarketing challenge for Airbus. Whilst they very recently announced the placement of the last two Kingfisher aircraft to Azerbaijan Airlines, Singapore announced that they will be selling their A340-500s back to Airbus. orders for the 777-200LR anytime soon. However, whilst some ultra-long-range routes remain on the agenda of a handful of airlines as yields are squeezed on the crowded routes, demand for the 777-200LR will hold firm. The 777-200LR is the most efficient of the ultra-long-range aircraft, both in terms of fuel and maintenance, and despite some very low pricing for the A340500, the pressure to maintain a low cost base will favour the Boeing product. It is worthy to note that according to the press, Air India is persisting in trying to sell off five of their eight aircraft fleet in the face of poor profits on the India-US route at the same time as taking delivery of their 787s. At only 238 seats, these 777s may prove difficult to sell without a significant discount to allow for reconfiguration as the aircraft is optimised to carry 290+ passengers. In conclusion, whilst the long-term future of the 777 family may be grey area given that Boeing is rumoured to launch both the 78710 and 777X, it is not widely believed that a new ultra-long-range aircraft will be part of this plan. If this is true, then the market for the 777-200LR should remain intact to serve the longest routes exclusively, that is until passengers get fed up of sitting in one seat for 18 hours!

Outlook
Given the niche markets that these aircraft serve, high fuel pricing and the pressure being applied to premium route traffic, we are not expecting any sudden surge in

Value opinions for 777-200LR, GE-90-110B1L engines, MTOW 766,000 lbs Year of Delivery Current Lease Rate 1.20 1.12 1.06 1.00 0.96 0.92 0.87 CMV 2012 2012 148.75 135.95 124.36 114.61 106.59 100.34 94.88 Current and Future Base Values, $ millions, including 2.5% annual infl ation 2013 2014 2015 2016 2017 2018 138.28 128.20 119.01 110.60 102.89 95.80 88.11 126.11 117.14 108.94 101.42 94.50 115.58 107.56 100.20 93.44 87.19 81.41 106.73 99.50 92.85 86.71 81.03 75.75 99.44 92.86 86.79 81.17 75.95 71.10 93.77 87.71 82.10 76.89 72.04 67.58 88.82 83.21 77.99 73.13 68.66 64.46

2012 2011 2010 2009 2008 2007 2006

145.77 133.23 121.87 112.32 104.46 98.34 92.99

2019 89.26 82.20 76.03 70.85 66.64 63.38 60.50

2020 83.19 76.70 71.06 66.34 62.44 59.42 56.75

2021 77.56 71.63 66.47 62.10 58.48 55.68 53.18

2022 72.37 66.93 62.16 58.09 54.73 52.11 49.77

US$ millions, 2.5% inflation – GE90-1101BL, MTOW 766,000lb

Jetrader 19


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Jetrader - January/February 2013

Table of Contents for the Digital Edition of Jetrader - January/February 2013

A Message from the President
Calendar/News
Q&A: Jep Thornton
Aircraft Financing in 2013
AFRA's NEW Best Management Practice (BMP) Guide Closes The Circle And Joins The Dots
ISTAT Foundation
Turbo Prop Leasing: Thoughts from the Front
Catching The Spirit: Ancillary Fees Under Attack
Aircraft Appraisals
Advertiser.com/Advertiser Index
Jetrader - January/February 2013 - cover1
Jetrader - January/February 2013 - cover2
Jetrader - January/February 2013 - A Message from the President
Jetrader - January/February 2013 - Calendar/News
Jetrader - January/February 2013 - 5
Jetrader - January/February 2013 - Q&A: Jep Thornton
Jetrader - January/February 2013 - 7
Jetrader - January/February 2013 - Aircraft Financing in 2013
Jetrader - January/February 2013 - 9
Jetrader - January/February 2013 - 10
Jetrader - January/February 2013 - AFRA's NEW Best Management Practice (BMP) Guide Closes The Circle And Joins The Dots
Jetrader - January/February 2013 - 12
Jetrader - January/February 2013 - ISTAT Foundation
Jetrader - January/February 2013 - Turbo Prop Leasing: Thoughts from the Front
Jetrader - January/February 2013 - 15
Jetrader - January/February 2013 - 16
Jetrader - January/February 2013 - Catching The Spirit: Ancillary Fees Under Attack
Jetrader - January/February 2013 - 18
Jetrader - January/February 2013 - Aircraft Appraisals
Jetrader - January/February 2013 - 20
Jetrader - January/February 2013 - 21
Jetrader - January/February 2013 - Advertiser.com/Advertiser Index
Jetrader - January/February 2013 - cover3
Jetrader - January/February 2013 - cover4
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